Hefter Impact Technologies, LLC v. Sport Maska, Inc.

MEMORANDUM AND ORDER ON PLAINTIFF'S MOTION FOR
SANCTIONS FOR SPOLIATION OF EVIDENCE AND DISCOVERY
MISCONDUCT

F.
DENNIS SAYLOR IV, United States District Judge

This is
a contract dispute. In 2005, plaintiff Hefter Impact
Technologies, LLC, (“HIT”) entered into an
agreement with defendant Sport Maska, Inc., d/b/a Reebok -
CCM Hockey, for the sale and assignment of a design for an
ice-hockey helmet. The agreement provided for a lump-sum
payment as well as the payment of royalties on the sale of
certain helmets. In substance, the complaint alleges that
defendant has failed to pay HIT royalties it is owed under
the agreement.

HIT has
filed a motion for sanctions for spoliation of evidence. For
the following reasons, the motion will be granted in part and
denied in part.

Around
2003, HIT developed a new design for an ice-hockey helmet
that the parties call the “Hefter Shell Design.”
(Id. ¶ 1).[1] Dennis Hefter, the founder of HIT,
testified that he created the Hefter Shell Design to appear
more narrow and angular than existing helmets in order to
give it a “faster” look. (Hefter Dep. 106; Pl.
Mot. Summ. J. SMF ¶ 2).

2.
Purchase and Assignment Agreement

On
November 15, 2005, CCM and HIT entered into a Purchase and
Assignment Agreement under which HIT conveyed the right,
title, and interest in the Hefter Shell Design to CCM. (Def.
Mot. Summ. J. SMF Ex. 2, Purchase and Assignment Agreement
(the “Agreement”)). The Agreement provided for a
lump-sum payment of $350, 000 for the assignment of the
Hefter Shell Design and for royalties of 4.5% of all net
sales of “any Product that incorporates the Shell
Design.” (Id. § 3.5). As relevant here,
“Product” is defined under the Agreement to mean
“a hockey helmet that incorporates the Shell
Design.” (Id. § 2.14). “Shell
Design, ” in turn, is defined to mean “the design
shown in [a schematic attached to the Agreement], including
the ornamental design and technical features of the design,
or any shell derived therefrom and substantially similar
thereto.” (Id. § 2.15).

a.
Helmets Not in Dispute

After
signing the Agreement, CCM developed a new line of hockey
helmets called “Vector” based, in part, on the
Hefter Shell Design. (Def. Mot. Summ. J. SMF ¶ 5). The
line encompassed multiple helmet models with different shell
designs. (Martin Dep. 134-35). A CCM employee named Phillipe
Martin was responsible designing the Vector line.
(Id. at 91- 92). Martin testified that for one set
of Vector models, about 30% of the design was based on the
Hefter Shell Design. (Id. at 135). For another set
of Vector models, less than about 50% was based on the Hefter
Design. (Id. at 134).

CCM
viewed the Vector line as a success. (Gibson Dep. 121). By
2012, about a third of National Hockey League players were
wearing helmets from that line. (Id.). The parties
agree that royalties are payable on the sale of any Vector
helmets, and that CCM has paid HIT royalties for the sale of
those helmets under the terms of the Agreement. (Def. Mot.
Summ. J. SMF ¶ 6).

b.
Helmets in Dispute

The
dispute in this case centers on helmets developed after the
Vector line: the Resistance line, the HT11K helmet, and the
FitLite line. (Id. ¶ 7).

Phillippe
Martin was also the lead designer on the Resistance line of
helmets. (Martin Aff. ¶ 2). The development of that line
began around 2010 and was completed in late 2013. (Gibson
Aff. ¶ 2). One of CCM's express objectives in
developing the Resistance line was to avoid paying HIT
royalties on helmet sales. (Gibson Dep. 185-86). Martin
testified that although there are some elements in common
between the Resistance design and the Hefter Shell Design,
including the placement of ventilation holes, those elements
were not inspired by the Hefter Shell Design. (Martin Dep.
219). According to Martin, “the outer shell design of
the Resistance helmets was not derived from [the Hefter Shell
Design] or the design of any other then-existing hockey
helmet. Put another way, neither [the Hefter Shell Design]
nor the Vector shell designs were reused in the design of the
Resistance outer shell.” (Martin Aff. ¶ 3).

Another
helmet designer employed by CCM, Sebastian Morin, was the
lead designer on the HT11K helmet and the FitLite line of
helmets, which includes the FL40, FL60, FL80, and FitLite 3DS
models. (Morin Aff. ¶ 2). Like Martin, Morin contends
that the designs of those helmets were not derived from the
Hefter Shell Design or any Vector or Resistance helmet.
(Id. ¶ 3). He further contends that the HT11K,
the FL40, FL60, and FL80 were derived from the shells of a
helmet line called the 8K helmet, which had a design
completed before November 2005. (Id. ¶ 3). He
further contends that he designed the FitLite 3DS helmet
model based on feedback he received from NHL star Sidney
Crosby as to his preferences in a helmet. (Id.
¶ 4).

c.
Ball Report

Roger
M. Ball, HIT's expert witness, is a professor of
industrial design at Georgia Tech University. (Docket No.
110, Ball Report Ex. B). He has more than thirty years of
experience in industrial design, including as a designer and
design consultant in the hockey industry. (Id.). He
holds four United States patents on ice-hockey and snowboard
helmets, and has authored articles on the design of
protective headgear. (Id.).

In his
expert report, Ball opined that the Hefter Shell Design has a
“stealth fighter” look that “represents a
significant departure from [CCM's] previous look of
rounded, organic shapes.” (Ball Report at 8). That
look, he contends, has been maintained in the Resistance
line, the HT11K, and the FitLite line. (Id. at 10).
Ultimately, he concluded that although the helmets are
“not identical, ” the Resistance line, the HT11K,
and FitLite line of helmets are “derived from and are
substantially similar to” the Hefter Shell Design.
(Id. at 23-24).

3.
Alleged Spoliation of Evidence

On
September 22, 2014, HIT sent a letter to CCM demanding
royalties for the sale of the Resistance line of helmets and
informing CCM that it would take further action, including
civil action, if not paid. (Pl. Mot for Sanctions Ex. L). The
letter did not mention the HT11K or FitLite line.
(Id.).

When
threatened with litigation, CCM's policy is to issue a
“litigation-hold memorandum” instructing
employees not to destroy relevant information. (Wexelblatt
Dep. 39- 40). Keith Wexelblatt is in-house counsel at CCM.
(Wexelblatt Aff. ¶ 1). Wexelblatt testified that the
memorandum instructs the relevant document custodians not to
destroy any information, to put all relevant information to
the side, and to not delete any hard-copy or e-mail
documents. (Wexelblatt Dep. 39). He also testified that he
and other business leaders may issue verbal and written
reminders concerning the memorandum as necessary.
(Id. at 40).

After
receiving HIT's letter, presumably in September or
October 2014, Wexelblatt issued a litigation-hold memorandum
to a number of employees involved in the development of the
Resistance line. (Wexelblatt Aff. ¶ 4). The memorandum
is not a part of the record in this case, as CCM has refused
to produce the document based on a claim of privilege.
Wexelblatt testified that he believed that the employees to
whom the memorandum was issued complied with it by preserving
the requested materials. (Wexelblatt Dep. 46-47). He
testified that in order to ensure compliance, he spoke with
some of the people to whom the memorandum was issued and with
the information technology department, but could ...

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